Instead, EIU study shows web-browsing, email, messaging and social media are most likely to spur growth with advertising

Despite the growing popularity of smartphones in the mobile market, telcos are unsure that the increasing use of data services will be able to sustain revenue growth, says a new study by the Economist Intelligence Unit (EIU).

The December 2009 study surveyed 197 executives in the mobile communications industry from the Asia-Pacific (30%),  North America (28%), Western Europe (26% ) and the rest of the world (16%). The panel of respondents are highly placed, with 43% holding C-Suite or equivalent positions and another 24% are senior vice presidents. Sponsored by InnoPath, the study was published on Feb 9.

According to the survey, only about four in 10 respondents say that growth in revenue from mobile data services will compensate for a decline in their company’s revenue from voice services over the next five years. Less than a quarter expect data services to merely offset the decline, while 25% say overall revenue will decline.

Almost half (47%) of the respondents plan to focus their efforts on developing content and software applications for phone users, said the report. However, the report observes that making money from content generation “will be tough” and that most mobile operator strategies in this area are as yet in their infancy.

Instead, most telcos are investing heavily in next-generation networks with 60% saying their companies are building third or fourth-generation (3G or 4G) systems — mostly to meet customer demand. Mobile TV and games require 4G networks. However, these data-hungry applications ranked low on the survey as potential revenue drivers.

Basic web-browsing, email, messaging and social media are the services most likely to spur revenue growth with advertising, rather than data consumption. Survey respondents believe enhanced browsing and social media services will entice advertisers and over 60% say advertising will be an important source of revenue.

Operators are also facing competition from non-traditional rivals like Google and Apple who are far ahead in the development of content and applications and were deemed “a significant problem” by 40% of survey respondents. Telcos who have tried in the past to counter the threat by blocking third-party sites ended up alienating customers. In the study, 72% agree that open-network policies are more successful and two-thirds are opting to partner with application store developers like Apple than to go it alone.

Improving efficiency is another main focus for telcos over the next five years. Faced with difficulties in generating increased revenue and the need for costly investments in next generation networks, almost half (49%) of respondents say they plan to focus on boosting operational efficiency.

Pricing is yet another challenge for operators — about 59% of respondents think per-usage pricing is more likely to ensure profitability, but customers prefer flat-rate price contracts and for 66%, customer retention is a priority.

The report concluded that operators need to craft a clear strategy for revenue-generation content and mobile applications to avoid being “just dumb pipes”. It added that given the cost and time needed to build next-generation networks, operators will have to improve operational efficiency in added areas such as sharing networks or automation of processes.

Finally, retaining the customers you have is less costly than attracting new ones so telcos should focus on improving customer satisfaction, said the report.



This article appeared on the Media & Advertising page, The Edge Financial Daily, Feb 18, 2010.